Air Force Asks for Broader Inquiry Into Charges of Favoritism in Boeing Contracts

By LESLIE WAYNE

Published: October 12, 2004

Correction Appended

The Air Force asked the Pentagon yesterday to broaden its investigation into a procurement scandal to include more contracts that a former official admitted improperly awarding to Boeing, including a $4 billion contract to upgrade software on the C-130 transport airplane.

The request comes as Boeing faces new challenges as a result of an admission last week by the former No.2 Air Force acquisition officer, Darleen A. Druyun, that she had favored Boeing in granting billions of dollars in contracts in an effort to get jobs for herself and her family.

Ms. Druyun was sentenced to nine months in prison last week, after pleading guilty to violating federal conflict-of-interest laws.

In a related development, the Lockheed Martin Corporation, which lost the C-130 contract to Boeing, said yesterday that it was consulting with its lawyers about filing a protest with either the government or in the courts, and could take that action as early as today.

Lockheed has 10 days since Ms. Druyun's admissions on Oct. 1 to lodge a protest with the Air Force; Congress's budget watchdog, the Government Accountability Office; or through the courts -- although many legal specialists say that the company's chances of prevailing in any action are slim, given that the C-130 contract was let three years ago.

In the fallout at the Pentagon, Ms. Druyun's former boss, Marvin Sambur, the Air Force assistant secretary for acquisition, asked yesterday that the Pentagon's inspector general expand its investigation to include all Boeing contracts handled by Ms. Druyun since 2000, including the C-130 contract and a $412 million price adjustment on a C-17 cargo plane contract. Previously, the Pentagon had been looking only into contracts dating back two years.

''We intend to ask the inspector general to investigate any contract where there was a potential for Ms. Druyun to adversely affect Air Force interests,'' said Mr. Sambur in an e-mail message to Bloomberg News that was confirmed by an Air Force spokesman, Doug Karas.

The investigation is being led by Joseph Schmitz, the Pentagon inspector general.

''Based on Ms. Druyun's admissions, we have not specifically asked the inspector general to include in their investigation her activities on the C-130 contract,'' the e-mail message continued. ''Upon completion of each investigation, we will take appropriate action.''

While most military specialists do not expect the Air Force to remove Boeing from the C-130 contract, the company could face financial penalties or be barred from bidding on other contracts. One loser in the awarding of the C-130 contract was Lockheed, which had built the C-130 plane since the 1950's and had been awarded all previous upgrade contracts.

A Lockheed spokesman, Tom Jurkowsky, said that ''we have confidence the government will fully explore this entire issue.''

The awarding of the C-130 software upgrade contract to Boeing shocked many people in the military; other bidders were Raytheon and BAE Systems. The $4 billion C-130 upgrade contract extends through 2016, with slightly over $300 million having been spent already.

The Air Force's action follows another setback for Boeing. Late Thursday, a House-Senate conference committee killed a $23 billion proposal for the Air Force to lease and purchase as many as 100 Boeing 767's for use as aerial refueling tankers. The conference committee opened up the Air Force tanker modernization contract to further studies, as well as to new competition, most likely from Airbus, a rival European consortium.

The committee also established new rules to prohibit the Air Force from leasing the airplanes from Boeing and to provide stricter budgeting requirements for any tanker modernization program.

Ms. Druyun admitted, in her plea agreement, that she provided Boeing with an overly generous per-plane price under the tanker-lease proposal. She also admitted that she had given Boeing proprietary data from a bid submitted by Airbus.

In a telephone conference call with reporters yesterday, Boeing's chief executive, Harry C. Stonecipher, said that he was not certain whether the C-130 and C-17 contracts were tainted.

''I don't know if they are tainted or not,'' Mr. Stonecipher said. ''I haven't seen the evidence that backs up the plea agreement. But if they're tainted, we'll fix them.''

Mr. Stonecipher also expressed optimism that Boeing would be part of the competition in the tanker program. ''We're used to competing for everything that we get,'' he said. ''If the customer decides they want to compete it, you can bet that we're going to compete.'' The customer Mr. Stonecipher was referring to was the Pentagon.

He was brought back as chief executive late last year to address ethical problems at Boeing as it expanded into the military business. He stepped in after the resignation of Philip M. Condit following the initial revelations by Ms. Druyun and the firing of Boeing's chief financial officer, Michael M. Sears, who also pleaded guilty to similar conflict-of-interest charges and is awaiting a hearing.

Beside the Druyun-Air Force scandal, Boeing was forced to give back $1 billion in Air Force contracts and was suspended from new rocket launching contracts after it was found that Boeing employees had stolen proprietary documents from Lockheed.

The final of four contracts that Ms. Druyun said she tilted in favor of Boeing was a $100 million payment for the upgrading of NATO airborne early warning and control system aircraft.

Correction: October 13, 2004, Wednesday
An article in Business Day yesterday about a request from the Air Force for a broader Pentagon inquiry into contracts awarded to Boeing misstated a word in an e-mail statement from an Air Force official, thus changing the meaning. The statement, by Marvin Sambur, the Air Force assistant secretary for acquisition, referred to a former acquisition officer, Darleen A. Druyun, who has acknowledged favoritism toward the company. It read, in part, ''Based on Ms. Druyun's admissions, we have now [rather than ''not''] specifically asked the inspector general to include in their investigation her activities on the C-130 contract.''
Correction: October 16, 2004, Saturday
An article in Business Day on Tuesday about a request from the Air Force for a broader Pentagon inquiry into contracts awarded by a former acquisition officer to Boeing, including one to upgrade the C-130 transport plane, misstated the history of previous C-130 contracts. While Lockheed Martin received most of them, Rockwell International, now a unit of Boeing, received one in the 1980's; Lockheed has not performed all of the upgrades.